With less than a week until the unofficial start of the second quarter of the quarter in Wall Street, investors are bracing themselves for what may be the first recession since 2016.
After earnings per share (EPS) in the first quarter was 0.3%, according to FactSet, analysts expect earnings to fall 2.6% on an annual basis (Y-o-Y) in the second quarter. If this is confirmed, this would also represent the largest annual decline in earnings reported by the index since Q2 2016, when the 3.2% FactSet banknotes fell.
Compared to the recent quarters, a larger percentage of S&P 500 companies lowered the bar for revenues for the April-June period. Of the 114 companies that issued Q2 EPS guidelines, 88 or 77% have released negative forecasts. The only time the number was higher was in the first quarter of 2016, with 92 companies providing negative guidance.
At sector level, there are expected to be six digits for a decline in Y-o-Y earnings, led by Materials and Information Technology. On the other hand, utilities and healthcare are the strongest of the five sectors that are predicted to report annual growth in earnings.
S&P 500 earnings growth – Q2 2019
Revenue growth expectations of 3.8% Y-o-Y are just as worrying. If confirmed, Q2 would mark the lowest revenue growth of the index since the third quarter of 2016. Three of the eleven sectors are expected to report a Y-o-Y sales decline, again down by the Materials and Information Technology sectors. In the meantime, eight sectors are expected to report Y-o-Y revenue growth, driven by the Communication Services and Healthcare sectors.
S & P 500 revenue growth – Q2 2019
Q2 Profit season: 2 sectors to avoid
1. Materials: Raw material prices sliding
The sector is expected to report the largest Y-o-Y profit decline of all eleven sectors, -15.6%, as the price of commodities like and glide. The sector is also expected to record the highest Y-o-Y sales decline of -14.8%.
Three of the four sub-industries are expected to report a decline in earnings for the quarter, with Metals & Mining most likely to fall by an unimaginable -60%. While the expected declines in revenues from Chemicals and Containers & Packaging are -8% and -7% respectively.
A total of 20 of the 28 companies (71%) in the Materials sector showed a decrease in their average EPS estimate, led by (NYSE 🙂 (to $ 0.02 from $ 0.13), (NYSE: ) (up to $ 0.97 from $ 1.87)) and (NYSE 🙂 (up to $ 0.33 from $ 0.58).
Vanguard Materials (VAW) ETF Chart
2. Information Technology: US-China Trade War
The second largest Y-o-Y profit decline is expected to come from the -11.9%. It is also predicted that the sector will suffer the second largest Y-o-Y sales decline by -1.1%, with the impact of the trade war between the United States and China taking a toll.
The information technology sector witnessed an unusually high number of companies giving negative indications for this quarter. In general, 26 companies in the sector have warned that revenues may be missing, which is higher than the 5-year average of 20.
Two of the six subsectors in the sector are expected to report a decline in earnings for the quarter. In fact, both are estimated at double profit figures: Semiconductors & Semiconductor Equipment (-31%) and Technology Hardware & Equipment (-22%).
At the company level, Micron Technology (NASDAQ 🙂 is predicted to make the largest contribution to the decline in revenues for the sector. The Idaho-based memory and storage company of $ 1.05 for Q2 2019 on June 25, a 39% decrease from EPS of $ 3.15 in the same quarter a year earlier. Sales amounted to $ 4.79 billion, a decrease from $ 7.8 billion in the same period last year.
Vanguard Information Technology (VGT) ETF Chart
Q2 Season Profit: 1 sector to buy
1. Healthcare: rising expenses
The sector is expected to report the second highest Y-o-Y earnings growth of all eleven sectors by + 2.1%. With rising health care expenditures, the proceeds are projected to enjoy the second-largest rise in Y-o-Y at + 12.4%.
At sub-sector level, five of the six sub-sectors in this sector predict growth in EPS, led by the Healthcare providers and services sector (15%). Sales growth for the quarter is also expected from five of the sub-industries with healthcare providers and services that expect a double-digit increase (+ 18%).
At company level, (NYSE 🙂 and (NYSE 🙂 predicted the largest contributions to revenue growth
Vanguard Health Care (VHT) ETF graph
